After years of consultation, amendments, and political debate, Division 296 is now law. The bills passed Parliament on 10 March 2026 and the tax takes effect from 1 July 2026 the start of the financial year that is already underway. If your total superannuation balance (TSB) exceeds or is approaching $3 million, the time to understand your position is now. This is the most significant change to the superannuation tax framework in Australia in over a decade, and for SMSF trustees in particular, the planning implications are substantial.
How Division 296 works
Who it applies to
Any individual whose TSB exceeds $3 million whether in an SMSF, industry fund, or retail fund. The tax is personal, assessed to the individual, not the fund itself.
What is taxed
Realised earnings only dividends, interest, rent, and realised capital gains attributable to the proportion of your balance above the relevant threshold. Unrealised gains are not taxed.
When assessments issue
The ATO will identify affected individuals and contact their fund after 30 June 2027. First assessments will be issued for the 2026–27 financial year.
How thresholds are indexed
Both the $3 million and $10 million thresholds will be indexed annually to CPI, in increments of $150,000 and $500,000 respectively protecting against bracket creep over time.
The two-tier rate structure
| Balance tier | Division 296 rate | Existing fund tax | Combined effective rate |
|---|---|---|---|
| Up to $3 million | Nil | 15% | 15% |
| $3 million to $10 million (earnings on this portion) | 15% | 15% | 30% |
| Above $10 million (earnings on this portion) | 25% | 15% | 40% |
The tax is applied on a proportional basis only earnings attributable to the balance above the relevant threshold are taxed at the higher rate. So a member with a $4 million TSB does not pay 30% on all their super earnings only on the portion of earnings attributable to the $1 million above the $3 million threshold.
Worked example member with $5 million TSB
Eagle Ridge SMSF Michelle, TSB $5,000,000
Total fund earnings (realised) for 2026–27 $250,000
Proportion of TSB above $3M threshold 40% ($2M ÷ $5M)
Division 296 earnings (40% × $250,000) $100,000
Division 296 tax (15% × $100,000) $15,000
Total additional tax payable by Michelle personally $15,000
Michelle has one year to pay this assessment, and may elect to release the funds from her SMSF to meet the liability. How earnings are allocated between members in a multi-member SMSF is subject to further ATO guidance an actuarial certificate may be required, adding to administrative costs.
The key change from the original proposal
Unrealised gains are no longer taxed under Division 296.The original 2023 proposal which would have taxed paper gains on assets that hadn’t yet been sold was one of the most contested aspects of the legislation. That approach has been dropped. Division 296 now operates on a realised earnings basis, consistent with existing income tax principles. Capital gains accrued before 30 June 2026 and sold after that date are also effectively excluded from Division 296 through the CGT cost base reset mechanism described below.
Critical planning decisions for SMSF trustees
1.CGT cost base reset election a one-time opportunity
SMSF members can elect to reset the cost base of all CGT assets held in their fund to their market value as at 30 June 2026. This locks out any unrealised capital gains accrued prior to that date, preventing them from being caught by Division 296 tax when those assets are eventually sold.
This election must be submitted by the due date of the 2026–27 SMSF Annual Return making on-time lodgement of that return critically important. Miss the deadline and the opportunity is permanently lost.
Important caveat: The election applies to all fund assets, not on an asset-by-asset basis. If any assets are in an unrealised loss position at 30 June 2026, their cost base will also be reset downward which could increase the Division 296 tax when those assets are eventually sold. Trustees must model both scenarios carefully before electing. Deadline: 2026–27 SAR due date Opt-in election only
2.Realising capital losses before 30 June 2026
For assets currently sitting in a loss position, there may be value in crystallising those losses before 30 June 2026. Carried-forward capital losses can offset capital gains and reduce the Division 296 earnings calculation in future years.
However, this decision must be weighed against the investment merits of retaining the asset, and the interaction with the cost base reset election. Your overall portfolio position not just the tax arithmetic should drive the decision. Review before 30 Jun 2026
3.Asset valuations get them done early
Whether or not a trustee elects the cost base reset, Division 296 will require accurate, independently supported market valuations for all SMSF assets at 30 June 2026. For property and unlisted assets especially, securing a valuer before year-end is important resources may be strained as many funds seek valuations simultaneously.
These valuations serve double duty: they satisfy the ATO’s existing Regulation 8.02B requirements for the annual audit, and establish the cost base reset values if the election is made. Secure valuers early don’t leave it to June
4.Pension phase funds a modified calculation applies
Funds entirely or predominantly in pension phase require a modified Division 296 earnings calculation. Pension phase income is generally tax-exempt at the fund level but this exemption does not simply flow through to the Division 296 calculation. Capital gains on pension-phase assets are handled differently, and the interaction between pension exemption and Division 296 earnings requires careful analysis.
Trustees with members entirely in pension phase should not assume they are automatically unaffected specialist modelling is required.Specialist advice required
5.Should you reduce your balance below $3 million?
Some trustees are considering withdrawing from super to bring their TSB below the $3 million threshold and eliminate Division 296 exposure. If you withdraw before 30 June 2027 and reduce your TSB below $3 million, you may avoid Division 296 tax entirely for that year.
However, this strategy must be modelled against the loss of concessional tax treatment within the fund, contribution rules and caps, estate planning goals, and the long-term value of the tax-preferred superannuation environment. For many high-balance trustees, the net advantage of staying in super even with Division 296 will remain significant.Model before acting do not withdraw without advice
Multi-member SMSFs additional complexity
Where an SMSF has multiple members one above the $3 million threshold and one below the fund must accurately attribute earnings to each member’s balance. How this split is calculated is subject to further ATO regulation, and in many cases an actuarial certificate will be required. This represents an additional cost and administrative layer for affected funds.
For example: if one member has a $5 million balance and the other has a $1 million balance, and the fund generates $300,000 in realised earnings, the ATO will need to identify how much of those earnings relate to each member before applying the Division 296 tax proportionally.
Don’t miss the cost base reset election deadline.The election to reset CGT cost bases to 30 June 2026 market values must be lodged by the due date of the 2026–27 SMSF Annual Return. If your fund has significant unrealised capital gains on assets held long-term particularly property this election could save substantial Division 296 tax over the coming years. Once the deadline passes, it cannot be revisited.
Frequently asked questions
Does Division 296 apply to my entire super balance or just the amount over $3 million?
Only to the portion above the threshold. The tax is calculated proportionally a member with $4 million only has Division 296 applied to earnings attributable to the $1 million above $3 million, not the full $4 million balance.
What if my TSB fluctuates above and below $3 million between years?
Division 296 applies in any financial year where your TSB exceeds $3 million. If your balance drops below the threshold in a subsequent year, you would not be subject to the tax for that year. Careful planning around contribution timing, withdrawals, and investment returns can influence this.
Can I use franking credits to offset my Division 296 tax liability?
This is an active area of planning. Franking credits received by the fund may be available to offset the personal Division 296 tax assessment, depending on how the legislation is applied and the structure of your fund’s investments. This should be modelled with your adviser before year-end.
When will I receive my first Division 296 tax assessment?
The ATO will identify affected individuals based on TSB data reported in the 2026–27 year and will issue assessments after 30 June 2027. You will have time to prepare before a payment is due but the planning decisions that affect your liability need to be made now, not after the assessment arrives.
Can the Division 296 tax be paid from my SMSF?
Yes. Affected members can elect to release funds from their SMSF to pay the Division 296 tax assessment. This avoids the need to fund the liability from personal assets outside super.
Action checklist for affected trustees June 2026
Check your TSB
Obtain your total superannuation balance across all funds and confirm whether you are affected.
Obtain asset valuations now
Secure independent valuations for property and unlisted assets before year-end demand peaks.
Model the CGT reset election
Assess unrealised gains and losses across all assets to determine if the election works in your favour.
Review unrealised losses
Identify any assets in a loss position that may be worth realising before 30 June 2026.
Ensure 2026–27 lodgement is on time
The cost base reset election deadline aligns with the 2026–27 SMSF return due date.
Review multi-member allocations
If members have different balance levels, understand how earnings will be attributed under Division 296.
Division 296 marks a structural shift in how high-balance superannuation is taxed in Australia and while the removal of unrealised gains tax from the final legislation was a meaningful relief, the law still introduces material complexity and cost for SMSF trustees with balances above $3 million. The decisions made between now and 30 June 2026 around valuations, cost base elections, and portfolio positioning will shape your Division 296 exposure for years to come.
At Agilis CA, our SMSF and tax team is working with Brisbane trustees right now to model Division 296 exposure, assess the CGT reset election, and put strategies in place before the window closes. This is not a set-and-forget tax it requires active, ongoing management from a team that understands both the superannuation and tax dimensions of your situation.
Model your Division 296 exposure with Agilis CA
Our Brisbane SMSF team is helping high-balance trustees navigate Division 296 right now from CGT reset modelling to year-end valuations. Book your planning session today.
